At the trial on December 14, 1998, I ruled from the bench and gave oral findings of fact and conclusions of law that the debtor's discharge should be revoked pursuant to 11 USC § 727(d)(2). Because the hour was late and I may not have stated all the reasons for revoking the debtor's discharge or articulated them well, this memorandum is an addendum to the oral ruling. It is not meant to supercede, but to supplement the oral findings I made at the trial.

The proceeding to revoke the discharge for failure to turn over estate property can be brought whether the property was received before or after discharge. ⁽¹⁾ To establish a case under § 727(d)(2), the trustee has the burden of proof. ⁽²⁾ He had to prove that Schmitz had acquired property of the estate, and both knowingly and fraudulently failed to deliver the property to the trustee. ⁽³⁾

6 ABR 41      Of these three elements of proof, the court has ruled that the IFQ/QSs are property of the estate, ⁽⁴⁾ and Schmitz admits that the property was transferred knowingly. The only issue at the trial level (defendants may well appeal the ruling that the rights were property of the estate), is whether Schmitz fraudulently transferred the property.

The defendants argue that there were no indications of fraud, but I find there were sufficient badges to find that the transfer was fraudulent. Since parties rarely televise a fraudulent intent, a finding of fraud can be determined from various indicators or badges of fraud. ⁽⁵⁾ The badges in this case were derived from the following findings and inferences:

• The trustee's attorney wrote Schmitz a letter on May 10, 1996, advising him that the IFQ/QS rights were property of the estate in the trustee's opinion;

• In an affidavit to set aside the default judgment, Schmitz stated that in September 1996, he talked to Battley and told him that the National Marine Fisheries Service or its state counterpart had determined the rights were not property of the estate, notwithstanding Battley's position to the contrary (the agency ruled in a dispute between Schmitz and Hugh Wisner regarding his application for the rights); ⁽⁶⁾

• The actual Quota Share Certificate is dated December 20, 1996, and presumably Schmitz received the Certificate sometime thereafter; ⁽⁷⁾

• Schmitz filed an application to transfer the permits less than two weeks after the issuance of the shares to his brother-in-law George Sliney; ⁽⁸⁾

• The transfer was not for cash but was for some crab pots; Schmitz testified he had no idea what the value of the quota shares was, and nonetheless transferred them for about 107 crab pots;

• Schmitz said he transferred the rights to get crab pots from his brother-in-law, Sliney, so Schmitz could fish for a particular variety of crab in the Bering Sea; he said the pots were subject to greater risk of loss than other crab fisheries;

Sliney, whose boat Schmitz had fished over a period of time, had usually provided the pots and split the proceeds 55% for the boat share and 45% for the crew share controlled by Schmitz who parceled it out for crew 6 ABR 42      members and other provisions;

in other fisheries, Schmitz said that he rented the pots and nonetheless split the take on a 55%-45% basis anyway;

the story did not ring true that, in the period of time, in order to go fishing for crab, Schmitz gave up rights of undetermined value to his brother-in-law George Sliney, to buy the pots when he was still going to split the take 55%-45%; and,

• In the bankruptcy case, it appears that Schmitz had previously transferred a limited entry permit he had acquired from Hugh Wisner to relatives. This permit was recovered by the trustee for the benefit of the estate. I considered this in determining whether Schmitz's transfer of the IFQ/QS rights was innocent as he claims.

(a) Schmitz had notice by Battley's attorney in May 1996, that the rights were claimed as estate property;

(b) a subsequent discussion about the rights with Battley occurred in September 1996, in which ownership of the rights was discussed;

(c) there was a transfer to his brother-in-law on about January 7, 1997, shortly after the issuance of the certificate for the rights on December 20, 1996;

(d) the transfer was made without having any knowledge of the value of the rights for 107 crab pots;

(e) the reason for the transfer sounds suspicious; and,

(f) there was a taint of having transferred other property to relatives prepetition which was ultimately recovered by the trustee,

raise a strong inference that the transfer of the QS rights to brother-in-law Sliney was with a fraudulent intent.

It is more probable than not that Schmitz was disinclined to give these fishing rights over to the bankruptcy trustee, despite the trustee's demand, after such a long battle with Hugh Wisner, his major creditor to deny those rights to him. Though the trustee did not become actively involved in the licencing dispute, he did not waive or abandon these rights.

And, if he recovers the money judgment being awarded in lieu of the return of these rights, some portion may go to pay Schmitz's priority tax debt.

DATED:      December 15, 1998.

HERBERT A. ROSS
U.S. Bankruptcy Judge

1. 6 ABR 40      Collier on Bankruptcy, ¶ 727.15 [ 4 ] (15^th ed supp 1998).

2. 6 ABR 40      Matter of Yonikus, 974 F2d 901, 904 (7^th Cir 1992).

3. 6 ABR 40      In re Bowman, 173 BR 922, 925 (9^th Cir BAP 1994).

4. 6 ABR 41      In re Schmitz, 224 BR 117 (Bankr D AK 1998).

5. 6 ABR 41      In re Adeeb, 786 F2d 1339, 1342-43 (9^th Cir 1986).

6. 6 ABR 41      See, Affidavit of George Schmitz in Support of Motion to Set Aside Default, Exhibit D, Page 5, ¶ 21, Docket Entry 31, filed February 5, 1998.

7. 6 ABR 41      Plaintiff's Exhibit 4, Quota Share Certificate for 41,478 Quota Share Units.

8. 6 ABR 41      Plaintiff's Exhibit 5, Application for Transfer of Quota Shares.